In most attorney-client disputes involving business transactions, clients typically only reach the conclusion that they have been aggrieved after the matter has concluded. It’s at this stage when a client will engage another attorney for the purposes of filing a claim against their former attorney involved in the original business transaction.
These claims might range from negligence such as overlooking a critical issue or fact of the case, to weightier issues of failing to adequately protect the client from a foreseeable risk inherent in the transaction or business matter itself. Additionally, there can be claims of conflicts of interest or fraud, but the most frequent or common claim filed against attorneys related to a business transaction is some form of negligence.
Legal claims of this nature occur in about 40 percent or less of all business transactions, and the cost of these claims can be significant. There are a few factors that affect the cost.
First, depending on the size of the transaction, the severity or loss suffered by the client can dramatically impact the claim. Moreover, the cost of resolving the claim is higher than average, due in no small measure to the need for defense counsel to spend considerable time reviewing and understanding all documentation related to the underlying transaction that prompted the claim. Finally, in such matters the client filing the claim is often uninterested in a quick settlement.
To avoid putting yourself at risk for these types of claims, it’s prudent to invest in a back-to-basics approach to best legal practices.
First and foremost, ensure that you have a substantial understanding of the nature of the transaction in question. Doing so will clearly demonstrate whether you have the requisite knowledge and experience to handle the matter in question, and if you are unsure of yourself, stop immediately and refer the matter to another attorney with greater experience.
As in all legal matters, copious documentation is essential. From a detailed scope of assignment that outlines what you will and won’t do, along with the responsibilities of the client and others, to illustrating the potential risks of the matter and the clients understanding of those risks – putting it all in black and white both sets expectations and provides a recourse for all parties if things don’t go as planned. We also recommend regular progress reports for the client that outline challenges and successes throughout the process. These progress reports should also seek approval from the client on any next steps recommended.
It’s not enough to provide the client with a full and ongoing understanding of the risks and steps along the way. Good attorneys must also have a deep sense of the client’s goals and intentions as part of the engagement, and developing this sense requires you use more than just an understanding of the law.
What to Look For
This is where pre-engagement client interviews become important. In the initial interview, you have to use active listening techniques, communicate questions with precision and accuracy, gauge the completeness of the client’s responses to questions, establishing a level of trust and confidence with the client, and, finally, make a careful evaluation of the pros and cons of taking on not just the legal matter, but the client more specifically.
Some questions you should be able to resolve to your complete satisfaction before signing the client might include:
- Is the client known to take unreasonable risks or treat commercial partners rudely/unfairly?
- Does the client make unreasonable requests?
- Is the client focused on the process or the cost of representation?
- Is the client forthright with answers?
- What is the client’s demeanor in the initial interview?
- Has the client engaged an attorney before, and what is their view of that experience?
Additional warning signs of which to be aware once you have agreed to represent the client include things like:
- Complaints about costs or milestones
- A focus on the lack of speed in the legal process
- An unresponsive client
You can protect yourself from unnecessary legal claims by understanding your clients, taking the advice herein to protect yourself and knowing the realities of such claims so you can take steps to mitigate your risk.